<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                                   FORM 10-Q
 
    (Mark One)
 
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 1997
 
                                      OR
 
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM ------------ TO ------------
 
Commission File Number: 1-9358
                        ------

                      PETROLEUM HEAT AND POWER CO., INC.
           ------------------------------------------------------
           (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                          <C>
Minnesota                                    06-1183025
-----------------------------------          -----------------------
(State or other jurisdiction of              (I.R.S. Employer
incorporation or organization)                 Identification No.)

2187 Atlantic Street, Stamford, CT           06902
-----------------------------------          -----------------------
(Address of principal executive Offices      (Zip Code)
</TABLE>
 
    Registrant's telephone number, including area code:  (203) 325-5400
                                                         --------------

---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
                                       report)


Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.

                           YES  X    NO
                               ---      ---

As of June 30, 1997 there were 23,325,867 shares of the Registrant's Class A 
Common Stock, 11,228 shares of the Registrant's Class B Common Stock and 
2,597,519 shares of the Registrant's Class C Common Stock outstanding.


<PAGE>

              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

                              INDEX To Form 10-Q

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                          <C>
Part 1   Financial Information:

Item 1 -- Financial Statements

  Condensed Consolidated Balance Sheets
  June 30, 1997 and December 31, 1996.....................................     3

  Condensed Consolidated Statements of Operations for the
  Three Months Ended
  June 30, 1997 and June 30, 1996
  and the Six Months Ended
  June 30, 1997 and June 30, 1996.........................................     4

  Condensed Consolidated Statement of Changes in
  Stockholders' Equity (Deficiency) for the
  Six Months Ended June 30, 1997..........................................     5

  Condensed Consolidated Statements of Cash Flows for the
  Six Months Ended
  June 30, 1997 and June 30, 1996.........................................     6

  Notes to Condensed Consolidated Financial Statements....................     7

Item 2 -- Management's Discussion and Analysis of
          Financial Conditions and Results of Operations..................  8-15


Part 2   Other Information:

Item 4 -- Submission of Matters to a Vote of Security Holders.............    16

Item 6 -- Exhibits and reports on Form 8-K................................    16

Signature.................................................................    17

</TABLE>

                                     2
<PAGE>


      PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
             Condensed Consolidated Balance Sheets
                         (Unaudited)

(In thousands)
 
<TABLE>
<CAPTION>
                                                                                          JUNE 30,   DECEMBER 31,
                                                                                            1997         1996
                                                                                         ----------  ------------
<S>                                                                                      <C>         <C>
Assets

Current assets:
  Cash and cash equivalents............................................................  $   28,172   $    3,257
  Restricted cash......................................................................       1,500        3,000
  Accounts receivable (net of allowance of $2,106 and $1,088)..........................      73,505       93,362
  Inventories..........................................................................      11,397       22,084
  Prepaid expenses.....................................................................       7,992        7,008
    Notes receivable and other current assets..........................................         786        1,299
                                                                                         ----------  ------------
Total current assets...................................................................     123,352      130,010
                                                                                         ----------  ------------
Property, plant and equipment--net.....................................................      28,929       30,666

Intangible assets (net of accumulated amortization of $294,721 and $283,486)
  Customer lists.......................................................................      72,234       77,778
  Deferred charges and pension costs...................................................      26,461       25,718
                                                                                         ----------  ------------
                                                                                             98,695      103,496
                                                                                         ----------  ------------
Investment in and advances to the Star Gas Partnership.................................      27,702       29,907
  Deferred gain on Star Gas Transaction................................................     (19,964)     (19,964)
                                                                                         ----------  ------------
                                                                                              7,738        9,943
                                                                                         ----------  ------------
Other assets...........................................................................       1,047          910
                                                                                         ----------  ------------
                                                                                         $  259,761   $  275,025
                                                                                         ----------  ------------
                                                                                         ----------  ------------
Liabilities and Stockholders' Equity (Deficiency)

Current liabilities:
  Working capital borrowings...........................................................  $   --       $   22,000
  Current debt.........................................................................       2,698        3,047
  Current maturities of redeemable preferred stock.....................................       4,167        4,167
  Accounts payable.....................................................................       8,094       18,988
  Customer credit balances.............................................................      10,996       17,468
  Unearned service contract revenue....................................................      13,561       15,388
  Accrued expenses and other liabilities...............................................      29,657       30,859
                                                                                         ----------  ------------
    Total current liabilities..........................................................      69,173      111,917
                                                                                         ----------  ------------
Supplemental benefits and other liabilities............................................       1,573        1,584
Pension plan obligation................................................................       7,574        7,587
Notes payable and other long-term debt.................................................      16,506       16,787
Senior notes payable...................................................................      63,100       34,150
Subordinated notes payable.............................................................     209,350      240,400
Redeemable preferred stock.............................................................      38,333        8,333
Common stock redeemable at option of stockholder (124 Class A and 31 Class C shares)...         984          984
Note receivable from stockholder.......................................................        (984)        (984)

Stockholders' equity (deficiency):
  Class A common stock-par value $.10 per share; 40,000 shares authorized, 23,202 and
    22,931 shares outstanding..........................................................       2,322        2,294
  Class B common stock-par value $.10 per share; 6,500 shares authorized, 11 shares
    outstanding........................................................................           1            1
  Class C common stock-par value $.10 per share; 5,000 shares authorized, 2,567 shares
    outstanding........................................................................         257          257
  Additional paid-in capital...........................................................      78,420       78,804
  Deficit..............................................................................    (220,783)    (221,024)
  Minimum pension liability adjustment.................................................      (6,065)      (6,065)
                                                                                         ----------  ------------
    Total stockholders' equity (deficiency)............................................    (145,848)    (145,733)
                                                                                         ----------  ------------
                                                                                         $  259,761   $  275,025
                                                                                         ----------  ------------
                                                                                         ----------  ------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3


<PAGE>


      PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
         Condensed Consolidated Statements of Operations
                         (Unaudited)

(In thousands, except per share data)
 
<TABLE>
<CAPTION>

                                                                         THREE MONTHS             SIX MONTHS
                                                                        ENDED JUNE 30,          ENDED JUNE 30,
                                                                    ----------------------  ----------------------
<S>                                                                 <C>         <C>         <C>         <C>
                                                                       1997        1996        1997        1996
                                                                    ----------  ----------  ----------  ----------
Net sales.........................................................  $   87,972  $   91,345  $  336,067  $  371,000
Cost of sales.....................................................      64,558      69,393     228,063     248,210
                                                                    ----------  ----------  ----------  ----------
  Gross profit....................................................      23,414      21,952     108,004     122,790

Selling, general and administrative expenses......................      24,738      24,532      50,034      51,954
Direct delivery expense...........................................       5,621       5,663      17,768      20,149
Restructuring charges.............................................       1,300       1,150       1,300       1,150
Corporate identity expenses.......................................       2,110         792       2,110         792
Amortization of customer lists....................................       4,431       4,740       8,931       9,529
Depreciation of plant and equipment...............................       1,830       1,732       3,551       3,389
Amortization of deferred charges..................................       1,174       1,336       2,304       2,688
Provision for supplemental benefits...............................         142         245         283         437
                                                                    ----------  ----------  ----------  ----------
  Operating income (loss).........................................     (17,932)    (18,238)     21,723      32,702

Other income (expense):
  Interest expense................................................      (8,344)     (8,453)    (17,149)    (17,567)
  Interest income.................................................         713         620       1,123       1,249
  Other...........................................................          13       1,812          38       1,847
                                                                    ----------  ----------  ----------  ----------
    Income (loss) before income taxes, equity interest and
      extraordinary item..........................................     (25,550)    (24,259)      5,735      18,231
Income taxes (benefit)............................................         (25)     --             350         400
                                                                    ----------  ----------  ----------  ----------
  Income (loss) before equity interest and extraordinary item.....     (25,525)    (24,259)      5,385      17,831

Equity in earnings of Star Gas Partnership........................      (1,929)     (1,893)        549       1,472
                                                                    ----------  ----------  ----------  ----------
  Income (loss) before extraordinary item.........................     (27,454)    (26,152)      5,934      19,303

Extraordinary item-loss on early extinguishment of debt...........      --          --          --          (6,414)
                                                                    ----------  ----------  ----------  ----------
  Net income (loss)...............................................  $  (27,454) $  (26,152) $    5,934  $   12,889
                                                                    ----------  ----------  ----------  ----------
                                                                    ----------  ----------  ----------  ----------
Preferred Stock dividends.........................................        (921)     --          (1,817) $   (1,194)
                                                                    ----------  ----------  ----------  ----------
  Net income (loss) applicable to common stock....................  $  (28,375) $  (26,152) $    4,117  $   11,695
                                                                    ----------  ----------  ----------  ----------
                                                                    ----------  ----------  ----------  ----------
Income (loss) before extraordinary item per common share:
  Class A Common Stock............................................  $    (1.09) $    (1.02) $      .16  $      .71
  Class B Common Stock............................................      --          --          --          --
  Class C Common Stock............................................       (1.09)      (1.02)        .16         .71

Extraordinary (loss) per common share:
  Class A Common Stock............................................  $   --      $   --      $   --      $     (.25)
  Class B Common Stock............................................      --          --          --          --
  Class C Common Stock............................................      --          --          --            (.25)

Net income (loss) per common share:
  Class A Common Stock............................................  $    (1.09) $    (1.02) $      .16  $      .46
  Class B Common Stock............................................      --          --          --          --
  Class C Common Stock............................................       (1.09)      (1.02)        .16         .46

Cash dividends declared per common share:
  Class A Common Stock............................................  $     .075  $      .15  $      .15  $      .30
  Class B Common Stock............................................      --          --          --          --
  Class C Common Stock............................................        .075         .15         .15         .30

Weighted average number of common shares outstanding:
  Class A Common Stock............................................      23,326      22,933      23,238      22,897
  Class B Common Stock............................................          11          13          11          13
  Class C Common Stock............................................       2,598       2,598       2,598       2,598
</TABLE>
 
See accompanying notes to consolidated financial statements.


                                       4


<PAGE>


      PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
 Consolidated Statements of Changes in Stockholders' Equity (Deficiency)
                         (Unaudited)

            Six Months Ended June 30, 1997 (In thousands)

(In thousands)
 
<TABLE>
<CAPTION>
                                    CLASS A                  CLASS B                    CLASS C
                                                             COMMON STOCK
                              --------------------  --------------------------  ------------------------
                              --------------------------------------------------------------------------  ADDITIONAL
                               NO. OF                 NO. OF                      NO. OF                    PAID-IN
                               SHARES     AMOUNT      SHARES        AMOUNT        SHARES       AMOUNT       CAPITAL      DEFICIT
                              ---------  ---------  -----------  -------------  -----------  -----------  -----------  -----------
<S>                           <C>        <C>        <C>          <C>            <C>          <C>          <C>          <C>
Balance at
  December 31, 1996.........     22,931  $   2,294          11     $       1         2,567    $     257    $  78,804   $  (221,024)

Net income..................                                                                                                 5,934

Cash dividends declared and
  paid......................                                                                                                (3,749)

Cash dividends payable......                                                                                                (1,944)

Class A Common Stock issued
  under the Dividend
  Reinvestment Plan.........        266         27                                                             1,145

Preferred stock offering
  costs.....................                                                                                  (1,639)

Other.......................          5          1                                                               110
                                                            
                              ---------  ---------          --            --         -----        -----   -----------  -----------
Balance at June 30, 1997....     23,202  $   2,322          11     $       1         2,567    $     257    $  78,420   $  (220,783)
                              ---------  ---------          --            --         -----        -----   -----------  ----------- 
                              ---------  ---------          --            --         -----        -----   -----------  -----------

<CAPTION>
                               MINIMUM

                               PENSION
                              LIABILITY
                                ADJ.        TOTAL
                              ---------  -----------
<S>                           <C>        <C>
Balance at
  December 31, 1996.........  $  (6,065) $  (145,733)

Net income..................                   5,934

Cash dividends declared and
  paid......................                  (3,749)

Cash dividends payable......                  (1,944)

Class A Common Stock issued
  under the Dividend
  Reinvestment Plan.........                   1,172

Preferred stock offering
  costs.....................                  (1,639)

Other.......................                     111
 
                              ---------  -----------
Balance at June 30, 1997....  $  (6,065) $  (145,848)
 
                              ---------  -----------
                              ---------  -----------
</TABLE>
 
See accompanying notes to consolidated financial statements.


                                       5


<PAGE>


            PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
                    Consolidated Statements of Cash Flows
                               (Unaudited)

<TABLE>
<CAPTION>
                                                                                                 SIX MONTHS ENDED
                                                                                                     JUNE 30,
                                                                                               --------------------
<S>                                                                                            <C>        <C>
(IN THOUSANDS)                                                                                   1997       1996
                                                                                               ---------  ---------
Cash flows from (used in) operating activities:
-----------------------------------------------
  Net income...................................................................................    $   5,934  $  12,889
  Adjustments to reconcile net income to net cash provided by (used in) operating activities:
    Amortization of customer lists...............................................................      8,931      9,529
    Depreciation of plant and equipment..........................................................      3,551      3,389
    Amortization of deferred charges.............................................................      2,304      2,688
    Share of income of Star Gas..................................................................       (549)    (1,472)
    Provision for losses on accounts receivable..................................................        953        865
    Provision for supplemental benefits..........................................................        283        437
    Loss on early extinguishment of debt.........................................................     --          6,414
    Gain on sale of business.....................................................................     --         (1,801)
    Other........................................................................................        (51)       (59)

    Change in Operating Assets and Liabilities, net of effects of 
      acquisitions and dispositions:
      Decrease in accounts receivable............................................................     18,904      7,291
      Decrease in inventory......................................................................     10,687      8,883
      Increase in other current assets...........................................................       (471)       (48)
      Decrease (increase) in other assets........................................................       (137)        52
      Decrease in accounts payable...............................................................    (10,894)   (14,179)
      Decrease in customer credit balances.......................................................     (6,472)    (9,975)
      Decrease in unearned service contract revenue..............................................     (1,827)    (2,414)
      Increase (decrease) in accrued expenses....................................................        711     (3,113)
                                                                                                    ---------  ---------
        Net cash provided by operating activities................................................     31,857     19,376
                                                                                                    ---------  ---------

Cash flows from (used in) investing activities:
-----------------------------------------------
  Minimum quarterly distributions from Star Gas Partnership......................................      2,754      1,559
  Acquisitions...................................................................................     (5,625)   (20,376)
  Capital expenditures...........................................................................     (1,195)    (3,325)
  Proceeds from sale of business.................................................................     --          4,073
  Net proceeds from sales of fixed assets........................................................        382        365
                                                                                                    ---------  ---------

    Net cash used in investing activities........................................................     (3,684)   (17,704)
                                                                                                    ---------  ---------

Cash flows from (used in) financing activities:
-----------------------------------------------
  Net proceeds from issuance of common stock.....................................................      1,172        832
  Net proceeds from issuance of preferred stock..................................................     28,362     --
  Repayment of notes payable.....................................................................     (1,050)    (1,050)
  Repurchase of common stock.....................................................................     --            (24)
  Repurchase of subordinated notes...............................................................     (1,050)   (49,612)
  Credit facility borrowings.....................................................................     13,000     29,000
  Credit facility repayments.....................................................................    (35,000)   (29,000)
  Decrease in restricted cash....................................................................      1,500      1,500
  Cash dividends paid............................................................................     (7,606)    (8,834)
  Other..........................................................................................     (2,586)     1,635
                                                                                                    ---------  ---------
    Net cash used in financing activities........................................................     (3,258)   (55,553)
                                                                                                    ---------  ---------

  Net increase (decrease) in cash................................................................     24,915    (53,881)
  Cash at beginning of year......................................................................      3,257     78,285
                                                                                                    ---------  ---------
    Cash at end of period........................................................................  $  28,172  $  24,404
                                                                                                    ---------  ---------
                                                                                                    ---------  ---------

Supplemental Disclosure of Cash Flow Information:
  Cash paid during the year for:
    Interest.....................................................................................  $  17,213  $  19,901
    Income taxes.................................................................................  $     135  $     159
</TABLE>
 
See accompanying notes to consolidated financial statements.


                                       6


<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
 
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
1. Basis of Presentation
The financial information included herein is unaudited; however, such 
information reflects all adjustments (consisting solely of normal recurring 
adjustments) which are, in the opinion of management, necessary for the fair 
statement of results for the interim periods.
 
The results of operations for the six months ended June 30, 1997 are not 
necessarily indicative of the results to be expected for the full year.
 
2. Accounting Changes
In February 1997, the Financial Accounting Standards Board (FASB) issued 
Statement of Financial Accounting Standards (SFAS) No. 128--"Earnings Per 
Share." SFAS No. 128 requires presentation of "basic" and "diluted" earnings 
per share for periods ending after December 15, 1997. The impact of adopting 
SFAS No. 128 will be immaterial.
 
3. Per Share Data
The Company computes net income per common share based upon the weighted 
average number of shares of Class A Common Stock, Class B Common Stock and 
Class C Common Stock outstanding after adjusting net income for preferred 
dividends declared aggregating $1,817,000 and $1,194,000 for the six months 
ended June 30, 1997 and 1996 respectively, and $921,000 for the three months 
ended June 30, 1997. Diluted net income per common shares are not presented 
because the effect is not material.
 
4. Acquisitions / Sale 
During the six month period ending June 30, 1997 the Company acquired the 
customer lists and equipment of four unaffiliated fuel oil dealers. The 
aggregate consideration for this acquisition, accounted for by the purchase 
method, was approximately $5.4 million. Sales and net income of the acquired 
companies are included in the consolidated statement of income from the 
respective dates of acquisition.
 
Had these acquisitions occurred at the beginning of the period, the pro forma 
unaudited results of operations for the six months ended June 30, 1997
would have been as follows:
 
<TABLE>
<CAPTION>
                                                                  (IN THOUSANDS, EXCEPT PER SHARE)
                                                                  --------------------------------
        <S>                                                       <C>
        Net sales............................................           $  339,163
        Net income...........................................                6,313

        Net income per common share:
          Class A Common Stock...............................           $     0.17
          Class B Common Stock...............................               --
          Class C Common Stock...............................           $     0.17
</TABLE>
 
5. Deferred Gain on Star Gas Transaction
In accordance with the Company's accounting policies, the Company deferred 
the gain of approximately $20.0 million for this transaction because the 
Company received subordinate units which do not readily have an ascertainable 
market price creating an uncertainty regarding realization, and due to the 
fact that Star Gas as general partner had a $6.0 million additional capital 
contribution obligation to enhance the Partnership's ability to make 
quarterly distributions on the common units (at June 30, 1997, $1.5 million 
of these funds were restricted at the Star Gas level, with $4.5 million 
having been released to Petro as certain quarterly guarantee provisions were 
fulfilled). The Company will recognize the gain from this transaction when 
the Company's subordinated units convert into common units in accordance with 
the terms of the partnership agreement and when the funds from the Company's 
capital contribution obligation have all been released. In general, full 
conversion of subordinated units to common units will take place no earlier 
than the first day of any quarter beginning on or after January 1, 2001, 
based upon the satisfaction of certain performance criteria for a period of 
at least three non-overlapping consecutive four-quarter periods immediately 
preceding the conversion date.



                                       7
<PAGE>

     PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
                   AND RESULTS OF OPERATIONS


Six Months Ended June 30, 1997
Compared to Six Months Ended June 30, 1996

Volume:  Home heating oil volume declined 13.6% to 254.3 million gallons for 
the six months ended June 30, 1997, as compared to 294.3 million gallons for 
the six months ended June 30, 1996.  This decrease was largely due to 9.4% 
warmer weather, as temperatures were significantly warmer than normal in the 
first half of 1997, in contrast to the colder than normal weather experienced 
during the first half of 1996.  Partially offsetting the warm weather and net 
account attrition was the acquisition by the Company of seventeen 
individually insignificant heating oil companies since the beginning of last 
year.

Net sales:  Net sales decreased 9.4% to $336.1 million for the six months 
ended June 30, 1997, as compared to $371.0 million for the six months ended 
June 30, 1996.  This decline was due to decreased volume, partially offset by 
higher selling prices.

Gross profit:  Gross profit decreased 12.0% to $108.0 million for the six 
months ended June 30, 1997, as compared to $122.8 million for the six months 
ended June 30, 1996 due to the decreased volume described above.  Gross 
profit did not decline to the same extent as volume due to an increase of 
over 1.2 cents per gallon in home heating oil margins in 1997 as compared to 
1996.

Selling, general and administrative expenses (SG&A):  Selling, general and 
administrative expenses decreased 3.7% to $50.0 million for the six months 
ended June 30, 1997, as compared to $52.0 million for the six months ended 
June 30, 1996.  This decrease was due both to the Company's ability to reduce 
certain overhead costs in response to the decline in volume and to reductions 
in certain expenses resulting from the Company's operational efficiency 
programs.

Direct delivery expenses:  Direct delivery expenses decreased 11.8% to $17.8 
million for the six months ended June 30, 1997, as compared to $20.1 million 
for the six months ended June 30, 1996.  This decrease was due to the 
reduction in volume, as the Company's productivity programs enabled it to 
respond to warmer weather by reducing its variable operating costs, and to 
the presence in the first quarter of 1996 of severe winter storms which 
increased the Company's delivery expenses.

Restructuring charges: Restructuring charges remained relatively unchanged at 
$1.3 million for the six months ended June 30, 1997, as compared to $1.2 
million for the six months ended June 30, 1996.  These charges represent 
costs associated with the Company's regionalization and consolidation program 
in the New York/Long Island region.

Corporate identity expenses:  Corporate identity expenses for the six months 
ended June 30, 1997 were $2.1 million, as compared to $0.8 million for the 
six months ended June 30, 1996.  These expenses represent costs associated 
with the Company's brand identity program implemented in Long Island during 
1996 and in the Company's New York and the Mid Atlantic regions during 1997.  
The Company intends to capitalize on its size by building significant brand 
equity through one brand name, rather than the multiple names currently in 
use.

                                      8

<PAGE>

Amortization of customer lists:  Amortization of customer lists decreased 
6.3% to $8.9 million for the six months ended June 30, 1997, as compared to 
$9.5 million for the six months ended June 30, 1996, as the impact of certain 
customer lists becoming fully amortized exceeded the impact of the Company's 
recent acquisitions.

Depreciation and amortization of plant and equipment:  Depreciation and 
amortization of plant and equipment increased 4.8% to $3.6 million for the 
six months ended June 30, 1997, as compared to $3.4 million for the six 
months ended June 30, 1996, as the Company's recent acquisitions outpaced the 
impact of certain assets which became fully depreciated.

Amortization of deferred charges:  Amortization of deferred charges declined 
14.3% to $2.3 million for the three months ended June 30, 1997, as compared 
to $2.7 million for the six months ended June 30, 1996, as the impact of 
certain deferred charges becoming fully amortized exceeded the impact of the 
Company's recent acquisitions.

Provision for supplemental benefits:  Provision for supplemental benefits 
declined to $0.3 million for the six months ended June 30, 1997, as compared 
to $0.4 million for the six months ended June 30, 1996.  These supplemental 
benefits reflect the extension of the exercise date of certain options 
previously issued, and the change in provision is due to a reduction of the 
accrual required under the vesting schedule of those options.

Operating income:  Operating income decreased 33.6% to $21.7 million for the 
six months ended June 30, 1997, as compared to $32.7 million for the six 
months ended June 30, 1996.  This decrease was largely a result of the 
weather-related decline in volume and an increase in restructuring and 
corporate identity expenses, partially offset by the Company's ability to 
contain certain operating expenses in response to the warm weather and an 
increase in the Company's heating oil margins.

Net interest expense:  Net interest expense remained relatively unchanged at 
$16.0 million for the six months ended June 30, 1997, as compared to $16.3 
million for the six months ended June 30, 1996, as a small reduction in gross 
interest expense resulting from both a slight decline in average borrowings 
outstanding and average rate was partially offset by a $0.1 million decline 
in interest income.

Other income:  Other income for the six months ended June 30, 1996 was $1.8 
million, reflecting the sale of the Company's sub-performing Springfield, 
Massachusetts heating oil operations during the second quarter of 1996.

Equity in earnings of Star Gas Partnership:  Equity in earnings of Star Gas 
Partnership declined 62.7% to $0.5 million for the six months ended June 30, 
1997, as compared to $1.5 million for the six months ended June 30, 1996.  
This decline was due to the impact of warm weather on Star Gas' propane 
volume and net income.

Extraordinary item - loss on early extinguishment of debt:  In February 1996, 
the Company recorded an extraordinary charge of $6.4 million in connection 
with the retirement of $43.8 million of 12.25% debt due 2005.  This amount 
includes both a prepayment premium of $4.8 million and a write-off of 
deferred charges of $1.6 million associated with the issuance of that debt.

                                      9

<PAGE>

Net income:  Net income declined to $5.9 million for the six months ended 
June 30, 1997, as compared to $12.9 million for the six months ended June 30, 
1997. This decline was largely due to the impact of warm first quarter 
weather on both the Company's and Star's volume, an increase in restructuring 
and corporate identity expenses and the gain on the sale of the Company's 
Springfield, Massachusetts business during the prior year, partially offset 
by improved heating oil margins and the absence in 1997 of the extraordinary 
item described above.

EBITDA*  EBITDA decreased 24.5% to $36.8 million for the six months ended 
June 30, 1997, as compared to $48.7 million for the six months ended June 30, 
1996. This decline resulted primarily from reduced volume caused by warm 
first quarter 1997 weather.  Excluding restructuring and corporate identity 
expenses related to the Company's operational restructuring program, and 
taking into account distributions actually received from Star Gas, EBITDA 
declined to $43.0 million from $52.2 million.

NIDA**  NIDA declined 38.2% to $21.1 million for the six months ended June 
30, 1997, as compared to $34.2 million for the six months ended June 30, 
1996.  This decrease was directly the result of the weather-related reduction 
in EBITDA (described above). Excluding restructuring and corporate identity 
expenses, NIDA declined to $24.6 million from $36.2 million.





* EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is 
defined as operating income before depreciation, amortization, non-cash 
charges relating to the grant of stock options to executives of the Company, 
non-cash charges associated with deferred compensation plans and other 
non-cash charges of a similar nature, if any.  EBITDA should not be 
considered as an alternative to net income (as an indicator of operating 
performance) or as an alternative to cash flow (as a measure of liquidity or 
availability to service debt obligations), but provides additional 
significant information in that EBITDA is a principal basis upon which the 
Company assesses its financial performance.

** NIDA (Net Income (Loss) Before Extraordinary Item, Depreciation and 
Amortization)is defined as net income (loss) before extraordinary item, plus 
depreciation, amortization, non-cash charges relating to the grant of stock 
options to executives of the Company, non-cash charges associated with 
deferred compensation plans and other non-cash charges of a similar nature, 
if any, less dividends accrued on preferred stock, excluding net income 
(loss) derived from investments accounted for by the equity method, plus any 
cash dividends received by the Company from these investments.  NIDA should 
not be considered as an alternative to net income (as an indicator of 
operating performance) or as an alternative to cash flow (as a measure of 
liquidity or ability to service debt obligations) but provides additional 
information in that NIDA is a principal basis upon which the Company assesses 
its financial performance.


                                     10

<PAGE>

Three Months Ending June 30, 1997
Compared to Three Months Ending June 30, 1996

Volume:  Home heating oil volume remained relatively flat at 61.8 million 
gallons for the three months ended June 30, 1997, as compared to 62.3 million 
gallons for the three months ended June 30, 1996.

Net sales:  Net sales decreased 3.7% to $88.0 million for the three months 
ended June 30, 1997, as compared to $91.3 million for the three months ended 
June 30, 1996.  This decrease was due to slightly reduced volume and to lower 
selling prices driven by lower cost of supply.

Gross profit:  Home heating oil gross profit increased 6.7% to $23.4 million 
for the three months ended June 30, 1997, as compared to $22.0 million for 
the three months ended June 30, 1996.  This improvement in gross profit 
resulted from a 2.2 cent increase in home heating oil gross profit margins 
over the prior year period, as well as a 4.8% reduction in service costs, 
which is included in the calculation of the Company's gross profit.

Selling, general and administrative expenses (SG&A):  Selling, general, and 
administrative expenses remained relatively unchanged at $24.7 million for 
the three months ended June 30, 1997, as compared to $24.5 million for the 
three months ended June 30, 1996, as the impact of the Company's productivity 
programs offset wage-related inflationary pressures. 

Direct delivery:  Direct delivery expenses decreased 0.7% to $5.6 million for 
the three months ended June 30, 1997, as compared to $5.7 million for the 
three months ended June 30, 1996.  This decrease is largely related to the 
decline in volume over the two periods.

Amortization of customer lists:  Amortization of customer lists decreased 
6.5% to $4.4 million for the three months ended June 30, 1997, as compared to 
$4.7 million for the three months ended June 30, 1996, as the impact of 
certain customer lists becoming fully amortized exceeded the impact of the 
Company's recent acquisitions.

Depreciation and amortization of plant and equipment: Depreciation and 
amortization of plant and equipment remained virtually unchanged at $1.8 
million for the three months ended June 30, 1997, as compared to $1.7 million 
for the three months ended June 30, 1996.

Amortization of deferred charges:  Amortization of deferred charges remained 
virtually unchanged at $1.2 million for the three months ended June 30, 1997, 
as compared to $1.3 million for the three months ended June 30, 1996.  

Provision for supplemental benefits:  Provision for supplemental benefits 
declined to $0.1 million for the three months ended June 30, 1997, as 
compared to $0.2 million for the three months ended June 30, 1996.  These 
supplemental benefits reflect the extension of the exercise date of certain 
options previously issued, and the change in provision is due to  a reduction 
of the accrual required under the vesting schedule of those options.

Operating loss:  Operating loss decreased 1.7% to $17.9 million for the three 
months ended June 30, 1997, as compared to $18.2 million for the three months 
ended June 30, 1996.  This decrease was despite a $1.5 million increase in 
restructuring and corporate identity costs associated with the reorganization 
of the Company's operations.

                                     11

<PAGE>

Net interest expense:  Net interest expense declined 2.6% to $7.6 million for 
the three months ended June 30, 1997, as compared to $7.8 million for the 
three months ended June 30, 1996.  This decline was primarily due to a 
reduction in average debt outstanding over the two periods.

Other income:  Other income was $1.8 million for the three months ended June 
30, 1996, reflecting the sale of the Company's underperforming Springfield, 
Massachusetts operations during the second quarter of 1996.

Equity in Loss of Star Gas Partnership:  Equity in loss of Star Gas 
Partnership was $1.9 million for both the three months ended June 30, 1997 
and 1996.

Net income (loss):  Net loss increased 5.0% to a loss of $27.5 million for 
the three months ended June 30, 1997, as compared to a loss of $26.2 million 
for the three months ended June 30, 1996.  This increase was primarily due to 
the $1.5 million increase in restructuring and corporate identity charges.

EBITDA:  EBITDA loss increased 1.7% to $10.4 million for the three months 
ended June 30, 1997, as compared to $10.2 million for the three months ended 
June 30, 1996.  This increase in EBITDA loss was due to a $1.5 million 
increase in restructuring and corporate identity charges related to the 
operational restructuring.  Excluding these charges, EBITDA loss would have 
improved 15.8%, or $1.3 million, largely due to an increase in retail gross 
profit margins. 

NIDA:  NIDA declined 16.3% to a loss of $17.7 million for the three months 
ended June 30, 1997, as compared to a loss of $15.2 million for the three 
months ended June 30, 1997.  This decline was due to a $1.5 million increase 
in costs related to the operational restructuring and to the absence of $1.8 
million in other income.  Excluding restructuring and corporate identity 
expenses, NIDA loss increased to $14.3 million from $13.3 million.



                                     12
<PAGE>


LIQUIDITY AND FINANCIAL CONDITION 

In February 1997 the Company entered into agreements ("Private Debt 
Modifications") to among other things, exchange the remaining $30.0 million 
of its $60.0 million 11.85%, 12.17%, and 12.18% notes ("11.96% Notes") ranked 
as subordinated debt to senior debt, and to extend the maturity date of the 
$60.0 million 11.96% Notes from October 1, 1998 to October 1, 2002 with $15.0 
million sinking fund payments due on October 1, 2000 and October 1, 2001 and 
the remaining $30.0 million balance due on October 1, 2002.

Also in February 1997 the Company issued $30.0 million of 12 7/8% 
Exchangeable Preferred Stock due February 15, 2009.  The intended use of this 
offering's net proceeds of $28.4 million is for general corporate purposes, 
as well as funding the Company's operational restructuring and acquisition 
programs. 

Net cash provided by operating activities of $31.9 million combined with the 
$28.4 million net proceeds from the 12 7/8% Exchangeable Preferred Stock 
offering described in the previous paragraph, amounted to $60.3 million.  
These funds were utilized in investing activities for acquisitions and the 
purchase of fixed assets of $6.8 million;  and in financing activities to 
repay notes payable of $1.1 million, repurchase subordinated notes of $1.1 
million, repay net credit facility borrowings of $22.0 million, pay cash 
dividends of $7.6 million, and other financing activities of $2.6 million, 
which includes $1.2 million associated with the Private Debt Modification of 
the 11.96% Notes. These financing activities were partially offset by cash 
provided from the Star Gas minimum quarterly distribution of $2.8 million, 
the release of $1.5 million in restricted cash as certain quarterly guarantee 
provisions were fulfilled, the proceeds from the sale of fixed assets of $0.3 
million, and proceeds from dividend reinvestments of $1.2 million.  As a 
result of the above activities, the Company's cash balance increased by $24.9 
million. 

The Company currently has available a $60.0 million working capital revolving 
credit facility.  No amount was outstanding under this credit facility at 
June 30, 1997, and the Company had $54.2 million of working capital.  

For the remainder of 1997, the Company anticipates paying dividends on its 
Common Stock before dividend reinvestment of approximately $3.9 million, 
redeeming $4.2 million of Redeemable Preferred Stock, and paying $3.1 million 
in preferred stock dividends. 

In addition, as a result of the December 1995 Star Gas Transaction, Star Gas 
Corporation, a wholly-owned subsidiary of the Company, as general partner 
remains contingently liable for the Partnership's obligations. These 
contingent liabilities are limited to Star Gas Corporation. Furthermore, to 
enhance the Partnership's ability to pay a minimum quarterly distribution on 
its common units, Star Gas agreed, subject to certain limitations, to 
contribute up to $6.0 million in additional capital to the Partnership if, 
and to the extent that, the amount of available cash constituting operating 
surplus with respect to any quarter is less than the amount necessary to 
distribute the minimum quarterly distribution on all outstanding common units 
for such quarter.  At June 30, 1997 $1.5 million of these funds were 
restricted at the Star Gas level, with $4.5 million having been released to 
Petro as certain quarterly guarantee provisions were fulfilled.

Based on the Company's current cash and working capital position, and bank 
credit facility, the Company expects to be able to meet all of the above 
mentioned obligations, as well as meet all of its other current obligations 
as they become due.


                                        13
<PAGE>

RESTRUCTURING CHARGES

Over the past two years Petro has dedicated a large amount of effort toward 
defining the best possible organizational structure for the Company.  The 
objective has been to structure the Company to provide superior service to 
its customers, build a brand image, and reduce operating costs.  

As part of the initial implementation of this program, Petro undertook 
certain business improvement strategies in its Long Island, New York region. 
These steps included the consolidation of the region's five home heating oil 
branches into one central customer service center and three depots.  The 
regional customer service center consolidated accounting, credit, customer 
service and the sales function into a single new facility in Port Washington, 
Long Island.  All external communications and marketing previously undertaken 
in the five branches were centralized into this one location freeing the 
three newly configured depots to focus on oil delivery and heating equipment 
repair, maintenance and installation, in mutually exclusive operating 
territories.  The Company incurred $1.2 million in restructuring expenses in 
the second quarter of 1996, for costs associated with the initial 
implementation of the restructuring program.

In April 1997, the Company informed its New York City employees of the 
intentions to continue the restructuring activity.  Such activity includes 
combining the Company's three New York City branches into one new central 
depot specializing in delivery, installation, maintenance, and service 
functions only, and like the Long Island depots, support it with the Port 
Washington facility. The Company recorded a restructuring charge of $1.3 
million in the second quarter of 1997 for restructuring costs of $0.4 million 
for termination benefit arrangements with employees and $0.9 million for 
continuing lease obligations for unused non-cancelable non-strategic 
facilities.

CORPORATE IDENTITY EXPENSES

Concurrently with the Company's initial restructuring efforts to increase 
productivity and customer responsiveness, it implemented a corporate identity 
program to increase the brand awareness of the "Petro" name among heating oil 
customers. The implementation of this program began in April 1996 with its 
Long Island region, where the new "Petro" identity and image was established 
while the region was being restructured.  Under this program, the Company 
began servicing its approximate 100,000 Long Island customers using the 
"Petro" brand name, rather than the twelve previously in use.  At December 
31, 1996, the Company expended $2.7 million for corporate identity expenses, 
which represented costs associated with repainting the fleet, issuing new 
uniforms and advertising the new "Petro" brand name.

For the six months ended June 30, 1997 the Company incurred $2.1 million
corporate identity expenses for costs associated with implementing its 
corporate identity program throughout the metropolitan New York City area and 
its Mid-Atlantic region.  The Company anticipates corporate identity expenses 
for the year-ended 1997 to be between $4.0 million and $4.5 million.


                                        14
<PAGE>

STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

This report includes "forward-looking statements" within the meaning of 
Section 27A of the Securities Act and Section 21E of the Exchange Act which 
represent the Company's expectations or beliefs concerning future events that 
involve risks and uncertainties, including those associated with the effect 
of weather conditions on the company's financial performance, the price and 
supply of home heating oil, the ability of the Company to obtain new accounts 
and retain existing accounts and the ability of the Company to realize cost 
reductions from its operational restructuring program. All statements other 
than statements of historical facts included in this Report including, 
without limitation, the statements under "Management's Discussion and 
Analysis of Results of Operations and Financial Condition" and elsewhere 
herein, are forward-looking statements. Although the Company believes that 
the expectations reflected in such forward-looking statements are reasonable, 
it can give no assurance that such expectations will prove to have been 
correct.


                                    15


<PAGE>


                           PART II OTHER INFORMATION
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
        (a) Annual Meeting of Shareholders June 5, 1997.
 
        (c) Proposals
 
<TABLE>
<CAPTION>
    1. ELECTION
       OF DIRECTORS              FOR          AGAINST     WITHHELD      ABSTAIN
       ------------              ---          -------     --------      -------
    <S>                      <C>              <C>         <C>           <C>
       Irik P. Sevin........ 38,502,585          *        442,009          *
       Audrey L. Sevin...... 38,502,585          *        442,009          *
       Phillip Ean Cohen.... 38,502,585          *        442,009          *
       Thomas J. Edelman.... 38,502,585          *        442,009          *
       Richard O'Connell.... 38,502,585          *        442,009          *
       Wolfgang Traber...... 38,502,585          *        442,009          *
       Paul Biddelman....... 38,491,991          *        452,603          *
       Stephen Russell...... 38,502,585          *        442,009          *
</TABLE>

    2. A proposal to amend Article III of the Company's Restated and Amended
       Articles of Incorporation (the "Articles") to increase the authorized 
       (i) Class A Common Stock from 40 million to 60 million shares and (ii) 
       preferred stock from 5 million to 10 million shares.
 
<TABLE>
<CAPTION>
                        FOR          AGAINST       ABSTAIN
                     ----------      -------       -------
                     <S>             <C>           <C>
                     29,684,587     4,834,362      15,700
</TABLE>

    3. A proposal to amend Article III of the Articles so as to conform the
       voting rights, rights upon a Change of Ownership and definition of 
       "Change of Ownership" of the Company's 1989 Cumulative Redeemable 
       Preferred Stock to the corresponding terms of the Company's 12 7/8% 
       Exchangeable Preferred Stock due 2009.
 
<TABLE>
<CAPTION>
                        FOR          AGAINST       ABSTAIN
                     ----------      -------       -------
                     <S>             <C>           <C>
                     30,174,125      480,679       3,879,765
</TABLE>
 
    4. Ratification of Appointment of KPMG Peat Marwick LLP as the Company's
       Independent Auditors
 
<TABLE>
<CAPTION>
                        FOR          AGAINST       ABSTAIN
                     ----------      -------       -------
                     <S>             <C>           <C>
                     38,924,116      12,428         8,049
</TABLE>
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
        (a) Exhibits Included Within: (27) Financial Data Schedule
 
        (b) Reports on Form 8-K
 
    No reports on Form 8-K have been filed during the quarter for which this
    report is filed.

                                    16
<PAGE>


                                   SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the 
Company has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized:




<TABLE>
<CAPTION>

Signature                  Title                              Date
---------                  -----                              ----
<S>                        <C>                                <C>

Irik P. Sevin              Chairman of the Board, Chief       August 7, 1997
-------------              Executive Officer, and
Irik P. Sevin              Chief Financial and Accounting 
                           Officer and Director

</TABLE>



                                      17